The C16 and C116 belong to the same family as the higher-end Plus/4 and are internally very similar[2] to it (albeit with less RAM - 16 rather than 64 KB - and lacking the Plus/4's user port[3] and integrated office suite). As a result, software is generally compatible among all three provided it can fit within the C16's smaller RAM and does not utilize the user port on the Plus/4.

While the C16 was a failure on the US market, it enjoyed some success in certain European countries and in Mexico.

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The C16 was intended to compete with other sub-$100 computers from Timex Corporation, Mattel, and Texas Instruments (TI). Timex's and Mattel's computers were less expensive than the VIC-20, and although the VIC-20 offered better expandability,[4][5] a full-travel keyboard, and in some cases more memory, the C16 offered a chance to improve upon those advantages. The TI-99/4A was priced in-between Commodore's VIC-20 and Commodore 64, and is somewhat between them in capability, but TI was lowering its prices. On paper, the C16 is a closer match for the TI-99/4A than the aging VIC-20.

Commodore president Jack Tramiel feared that one or more Japanese companies would introduce a consumer-oriented computer and undercut everyone's prices.[6] Although the Japanese would soon dominate the U.S. video game console market, their feared dominance of the home computer field never materialized. Additionally, Timex, Mattel, and TI departed the computer market before the C16 was released.

Outwardly the C16 resembles the VIC-20 and the C64, but with a dark-gray case and light-gray keys. The keyboard layout differs slightly from the earlier models, adding an escape key and four cursor keys replacing the shifted-key arrangement the C-64 and VIC inherited from the PET series. Performance-wise located between the VIC-20 and 64, it has 16 kilobytes of RAM with 12 KB available to its built-in BASIC interpreter, and a new sound and video chipset offering a palette of 121 colors, the TED (better than the VIC used in the VIC-20, but lacking the sprite capability of the VIC-II and advanced sound capabilities of the SID, both used in the C64). The ROM resident BASIC 3.5, however, is more powerful than the VIC-20's and C64's BASIC 2.0, in that it has commands for sound and bitmapped graphics (320×200 pixels), as well as simple program tracing/debugging.

From a practical user's point of view, three tangible features the C16 lacks are a modem port and VIC-20/C64-compatible Datasette and game ports. Commodore sold a C16-family-specific Datassette (the Commodore 1531) and joysticks, but third-party converters to allow the use of the abundant, and hence much less expensive, VIC-20/C64-type units soon appeared. The official reason for changing the joystick ports was to reduce RF interference.[citation needed] The C16's serial port (Commodore's proprietary "serial CBM-488 bus", no relation to RS-232 and the like) was the same as that of the VIC-20 and Commodore 64, which meant that printers and disk drives, at least, were interchangeable with the older machines. Partially for cost reasons, the user port, designed for modems and other devices, was omitted from the C16 (although the connections for it were still present on the system board). Despite costing less than the Plus/4, the C16's keyboard was higher quality and easier to type on.

Early Commodore 16 single layer PCB (prototype), not used in regular series model

European box, Commodore 16 prototype (bottom left) and a regular series model with black case

The Commodore 16 is one of three computers in its family. The even-less-successful Commodore 116 is functionally and technically similar but was shipped in a smaller case with a rubber chiclet keyboard and was only available in Europe. The family's flagship, the Commodore Plus/4, was shipped in a similar case but has a 59-key full-travel keyboard (with a specifically advertised "cursor key diamond" of four keys, contrasted with the VIC-20's and C64's two + shift key scheme inherited from the PET), 64 KB of RAM, a modem port, and built-in entry-level office suite software. Although shipped with 16k from the factory, it was possible to modify the C16 for 64k, making it able to run any Plus/4 software except applications that required the user port or built-in programs.

Hardware designer Bil Herd notes that the C116 is the original member of this family of computers and is the original vision as imparted by Jack Tramiel to the engineering department. It was designed to sell for $49 to $79. The C16 and the Plus/4 came later and were mostly driven by the company trying to figure out what to do with the new computer family after Tramiel's departure from Commodore.

In an early stage of development of the C16, Commodore was planning to have single layer PCBs built in as an attempt of cost reducing; those plans were later discarded possibly due to technical problems.[7] It was the first and only attempt of Commodore using single layer PCBs inside their computers, and only one such PCB is known to be preserved.

The C16 was a major failure in the US and was discontinued within a year, but it sold reasonably well in Europe as a low-end game machine (over 90% of all C16 software was produced by European developers) and in Mexico as well.

The C16's failure in the US market was likely due to a lack of software support, incompatibility with the C64, and lack of importance to Commodore after its competitors withdrew from the market.

A total of 1 million Plus/4s, C16s, and C116s were sold, with the latter two accounting for about 60% of its total volume.

Beginning in 1986, remaining C16, C116 and Plus/4 inventories were sold at a much reduced price on the Eastern Bloc market, chiefly Hungary. Hungary did not produce any home computers at the time, while the Soviet, Bulgarian and East German models were far too expensive for most Hungarians, and most Western models were completely out of reach. Thus, this move by Commodore was the first chance for many people in Hungary to own a computer at all. It created a fanbase that lasted well into the 1990s and that contributed several unofficial ports of popular Commodore 64 programs.[citation needed]

In Mexico, the C16 was sold as a beginner's computer from early 1985 to 1992. Aurrerá supermarkets distributed them with Grupo Sigma S.A., a local distributor of Commodore USA. The computer was marketed as "Sigma-Commodore 16"[8] (all other Commodore computers sold in Mexico had the same moniker). Basically, this model is the same as the American/European C16; as it doesn't have the "Ñ" key needed for writing the Spanish language, the only difference is the custom label.

Aurrera Supermarket also sold software, peripherals and books about to how to program Commodore Computers. All these merchandise were displayed in special modules at electronics department called "El Universo de la Computación" (The Universe of the Computer Science). The success of Commodore in Mexico were in granted by the fact that Aurrera Supermarket let any people test the machines in store, so people gather to play games and exchange programs in unofficial computer clubs.[9]

At least four annual software writing contests were held sponsored by Aurrera Supermarket, Grupo Sigma and Commodore between 1985 and 1989[10]. These contest had entries for programming, custom hardware and computer graphics for the C16, C64, C128 and Amiga. Prizes included money, Commodore software and hardware and the right to have the software published by Grupo Sigma for the local market. The contest winners had limited sales restricted only to Mexico, so the resulting original software is almost impossible to find.

Grupo Sigma stopped supporting the brand in mid-1993, in favor of the growing (and more profitable) IBM PC compatible market.